The Reserve Bank of India (RBI) accepted 21 out of 33 recommendations from an internal working group on the ownership policies and corporate structure of private sector banks on November 26.
For non-bank financial corporations (NBFCs) seeking conversion to a universal bank, the sponsor company’s minimum experience requirement, including an NBFC in the conversion process, can be up to ten years.
Regarding the eligibility of promoters, the RBI said it might consider introducing a stricter bank-like regulatory framework for large NBFCs as part of the scale-based regulation of the NBFC.
The initial recommendations of the internal working group were as follows: Allow large, well-managed NBFCs with assets of Rs 50 billion to conduct due diligence.
The central bank accepted the recommendation to raise the level of the universal bank’s initial capital requirement. As a result, the share capital / released voting share capital originally required to establish a new universal bank could be increased to Rs 1 billion (up from Rs 500 billion today), the RBI said.
The central bank is still examining the recommendation on asset size requirements.
Also, the central bank does not allow corporations to finance banks, but large, well-managed NBFCs could also be tightly regulated under scale-based regulation.
A senior official at a major NBFC said that major NBFCs seeking a banking license should make detailed decisions about the benefits and costs of the transition; Banking is not just about loans, but operating costs and structure are not low or comparable to NBFCs.
In addition, regulatory requirements will increase with compliance with the legal liquidity ratio and the cash reserve ratio, the official added. Additionally, NBFCs considering a transition must also understand the implications for existing stakeholders, from shareholders to customers.
Access to public deposits is an attractive factor for NBFCs to apply for a banking license, but regulatory oversight and scrutiny are increasing, which is a good thing from the RBI’s point of view.
One analyst, who requested anonymity, said it was difficult to say which NBFC would qualify and apply for a license, although some of the larger ones would not apply for a license, they would be supervised and regulated in the same way as banks.